Increases In Minimum Contributions For Automatic Enrolment Pensions

Under the automatic enrolment system, minimum pension contributions are required to increase over time. This happens on specified dates, and is a key feature of automatic enrolment.

Starting from the 6 April 2018, employers may be required to increase the amount of their contributions into their automatic enrolment pension. Employees will then be responsible for making up whatever shortfall remains of the new total minimum contribution.

The contribution levels rise continuously until the employer is paying a minimum of 3% towards the pension and the total minimum contribution reaches 8% – with the employee making up the rest.

It’s useful to note that if the employer pays the same as the minimum total contribution then the employee won’t need to pay any contributions, unless the specific scheme makes a contribution mandatory.

Also, both the employer and employee can choose to contribute greater amounts to the pension if they want to do so.

If the employer contributes more than their required minimum amount, but less than the total minimum amount, then the employee only needs to make up the shortfall between the total minimum and the employer contribution.

Below we have outlined the phases of contribution increases, with the employer paying only their minimum, and the employee contribution shown in brackets (the difference between the total minimum and the employer minimum):

Date Effective

Employer minimum contribution

Staff contribution

Total Minimum Contribution

Currently until 5 April 2018

1%

1%

2%

6 April 2018 to 5 April 2019

2%

3%

5%

6 April 2019 onwards

3%

5%

8%

Self-certification scheme increases

There are times when employers may already have either DC or DB workplace pension schemes in place.

In these cases, rather than needing to set up a new automatic enrolment scheme, these schemes can sometimes be used to put employees under the employer’s automatic enrolment duties, assuming they meet certain criteria and conditions.

Further, employers can self-certify that their scheme meets the minimum requirements to qualify for automatic enrolment. In these instances, schemes are usually divided into three sets, each of which have their own qualifying conditions, with their own requirements under automatic enrolment for each of them, which we will detail below;

Set 1

From the 6th April 2019, a total minimum contribution of at least 9 percent of pensionable pay applies. And of that 9 percent, at least 4 percent has to be contribution from the employee.

Set 2

From the 6th April 2019, a total minimum contribution of at least 8 percent of pensionable pay applies. And of that at least 3 percent has to be the employee’s contribution. This is assuming that pensionable pay consists of at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at the scheme level).

Set 3

From the 6th April 2019, a total minimum contribution of at least 7 percent of earnings (at least 3 percent of which must be the employer’s contribution) provided that all earnings are pensionable.

The table below clearly shows the various phases of contribution increases for each of the above sets, with the employer paying only their minimum and the employee contribution shown in brackets: